Tesla stock will sell off this month after 'off the chart' rally as retail investors lose excitement over Elon Musk, research firm says

• Vanda Research sees a sell-off coming for Tesla stock later this month after a hot start to 2023.
• Retail investors have piled into the EV-maker's stock, but Elon Musk's recent announcements fell flat.

Tesla stock has had a red-hot start to 2023 thanks to enormous retail investor interest, but Elon Musk's announcements this week could end up sparking a sell-off rather than more enthusiasm, according to Vanda Research.

In a note following Musk's latest colorful statements at the company's investor day, Vanda forecasted that Tesla shares will see a decline in overall purchases in the near term.

Shares of the EV-maker declined 6% Thursday. So far this year, Tesla stock has gained more than 80% following 2022's brutal performance.

"[Th]e monthly purchases of TSLA by retail investors are off the chart, likely attributable to a combination of relatively low perceived price and excitement surrounding Musk's Master Plan," the strategists said.

That plan, however, may not have resonated this week, and Musk's failure to unveil new vehicle models and specify a timeline on certain milestones for the company ran counter to the enthusiasm going into the event.

After Tesla completed a stock split in the summer of 2020, and following the Hertz partnership deal in 2021, there was a reversal of retail flows, which suggests the same could happen again, the research firm said.

"If we assume that much of the retail buying was driven by momentum rather than a strong conviction, a stagnation in performance caused by the lack of new 'rumors' to buy, could result in a significant reversal in sentiment, investment flows, and ultimately stock price," Vanda said.

Not only that, but strategists noted Tesla stock could come under pressure from a spike in institutional short sellers, as short interest has been relatively stagnant over recent months. The broader landscape of sticky inflation and high rates also make growth companies like Musk's less attractive.

"[T]he current environment is more favorable for a sell-off, given the sizable investment flows in comparison to historical levels."